Affordable housing key priority, says Mahindra Lifespace

Mahindra Lifespace, the listed real estate arm of the USD 16 billion Mahindra Group has identified affordable housing as key priority for the business going forward. The segment has been neglected by construction players for various reasons.

"We really cannot afford to ignore a significant part of the population in terms of meeting their housing needs. So, we are quite excited about the segment," MD and CEO Anita Arjundas told CNBC-TV18 in an interview. The company plans to launch two new projects under affordable housing. It will also planning to launch three premium residential projects in Mumbai, Bangalore and Gurgaon. The range of homes in the premium housing project would be Rs 1.5 crore- Rs 5 crore. Originally called Mahindra Gesco this realty firm was founded in March 1999. Its development footprint includes over 7.5 million square feet of completed projects. Mahindra Lifespace's residential developments and integrated cities are spread across eight cities that include Mumbai, Pune,Nagpur, Gurgaon, Faridabad, Jaipur, Chennai and Hyderabad. The company in fact will soon be entering Bangalore. Below is the verbatim transcript of Arjundas's interview Q: What is your launch pipeline for FY14? A: We have acquired a fairly interesting mix of land parcels in the last three to six months. So, we should see some very interesting launches happening during the year. Timing would depend upon approvals but we have eight new projects which are in the pipeline. So, we have projects which straddle different segments. We have two new projects in the affordable housing segment i.e. low cost housing which are homes that are below Rs 15 lakh. We have a new project in the World City at Chennai, in the category of value housing which will cost Rs 15-30 lakh. We have something coming up in the vacation homes segment, the weekend getaways at Alibaug. We have another project coming up in Pune which is a luxury boutique residential project called Latister, which will have limited quantity and will be launched during this year. We have three new premium residential projects coming up in Mumbai in Andheri, in the National Capital Region (NCR) in Gurgaon and in Bangalore and Bannerghatta Road. Q: Lets talk about pricing now. Can you give me an idea at what these launches would be priced at? A: If you look at the premium residential projects in Bangalore, National Capital Region (NCR) and Mumbai then they would be upwards of Rs 1.5 crore, going up to about Rs 5 crore. If you come down to the budget housing and second homes, that will cost anywhere between Rs 30 lakh going up to about Rs 1.5 crore. Q: How are your existing projects doing? Resales are always a good barometer to gauge the success of a project. What kind of resale activity are you seeing in your projects? A: Most of our projects you will find that it is largely end users who buy into our projects. Almost 80 percent of our projects are picked up by end users except maybe one or two specific projects which will see a higher quantum of investors into the project and therefore not to much of resale when you are looking at end users. Through experience we have found that most of our customers tend to stay with us right till the completion of the project. They don’t generally flip in the middle while the project is under execution. So, across all our projects which are under execution today we have customers staying on till the end because they see significant appreciation over a period of time and like to stick on to be able to get that value out of the project. Q: In that case what kind of a price appreciation are you seeing in the existing projects? A: You typically see prices moving in the range of about 7-8 percent on an annual basis across projects. That is the level that we have been seeing. I think it is really a question of how you launch projects. Do we put out the total project out on day one and sell it out on day one or do we launch in phases. Connected to construction phases so that people actually see their homes being built as they buy them and then how do you take price up steadily over a period of time as the project gets built out so that people see value in terms of the price that they are paying over a period of time. Q: Right at the beginning of this interview you talked about entering affordable housing. What is the logic especially at a time when developers are once again focusing on luxury homes? Also this is a low margin business. We have seen many developers fail when it comes to this segment. Many have even shelved plans? A: There are two very strong reasons why we are looking at this space. One is market driven, which is the fact that you have a very large segment of the population at the bottom of the pyramid which has no access to housing in the form of buying their first home. A very significant segment not really catered to for various reasons and we think that as time goes it is going to be very important for the industry to be able to address this segment. The second goes back to the very core of how we look at our business, which is about sustainable urbanisation. _PAGEBREAK_  If you are looking at making an impact in terms of how India urbanises, we really cannot afford to ignore a significant part of the population in terms of meeting their housing needs. So, we are quite excited about the segment. I will not say it is going to be a cakewalk or its going to be easy. It is a space people have experimented with, with different levels of success. Margins are low as you rightly said but if we can get high volumes going in, if we can get quick turnarounds then it’s still worth the while in terms of being in that space. Q: How exactly are you defining affordable housing. I have spoken to developers in the past that even call homes costing up to Rs 40-50 lakh as affordable? A: People have very different definitions of what is affordable. We are staying with the definition of what the ministry of housing and urban poverty alleviation looks at. So, it is basically homes which are around 30 square metres to 60 square metres in size and targeting people who are typically in the Rs 10000-30000 in terms of monthly family income segments. So, people who today do not have access to housing - a combination of organised sector and unorganised sector. So, the access to housing finance becomes a very critical component of the way we look at affordable housing. What we are really looking at is cities which are heavily urbanised, you look at Chennai for example which has close to 50 percent in terms of urbanisation levels, Mumbai again has about 50 percent in terms of urbanisation levels and these would be the cities of target. We are really looking at much urbanised cities, much industrialised states and looking at how we can provide housing in these markets. What is going to be very important for us is how we are close to transport corridors so that people are able to commute back and forth from work. Q: You have already mentioned Chennai, where all are you planning to launch affordable housing? A: We have two pilots and what we are doing with the space is honestly at this point in time is experimenting with these two pilots, seeing how it goes and then taking a final call on our presence in the space. The two pilots are in Chennai in Avadi, which is in the western suburbs of the city of Chennai, just about two kilometers from the rail station at Avadi and the second project is at Boisar in Mumbai, outskirts of Mumbai, so again about two and half kilometers away from the train station at Boisar. Q: Will all of this be part of a new brand? A: We will be floating a new brand for it, but it will be endorsed by Mahindra Lifespaces. So, it is not as if it is a distinctly separate brand, which does not have linkages to the parent brands. We will bring in the same transparency, ethos, values, and the same approach to sustainability even to the new brand, but it will be new brand endorsed by Mahindra Lifespaces. Q: Who will your competitors be for this segment, is it mainly going to be Tata Housing? I understand their low cost housing project is coming up pretty close to your upcoming one in the outskirts of Mumbai? A: Each person has a different approach to the category. So, I wouldn’t put it in the same yardstick because I think the approach there is slightly different. It is part of budget housing-cum-low cost housing-cum-mid-market housing put into one township. So, it is kind of driven by locations which are relevant to mid-market segments. There are certain other companies who have been looking at pure affordable housing. So, I guess they would be more relevant competition. Q: You have big plans for the fiscal, does Mahindra Lifespace need to go in for any form of fund raising? A: We have already done our bit of fund raising in the earlier part of this year. So, we had internal accruals, which we obviously used to be able to get some of the land banks going. We have also raised Rs 500 crore in the form of a nonconvertible debenture in the month of April. So, we have got that which has come into fund, a new acquisitions that have taken place in the last two-three months. So, I think we are fine in terms of capital outlays that are required to meet FY14 requirements. Q: What about debt-that's always an area of concern when we talk about developers and how their projects are progressing. What’s your debt like? A: At this point in it is not really a concern. We have been at a standalone level, as of March 13, we had a debt-equity ratio of 0.34 and at the consolidated level it was 0.74. So, we are looking at being able to stay at a consolidated debt-equity ratio of less than one and as long as we are within that framework we should be able to service debt, service interest and meet our growth needs. I think what’s important to note is that we are cash flow positive in terms of operations. We generate surplus cash out of operations. The debt is going into meet growth needs. So, in that sense it is growth capital that we have been shoring up in the last few months and therefore it is oriented towards our confidence and our ability to grow in the market in the next 2-3 years. Q: But in that case if you are comfortable with your debt, if you are cash flow accretive. Why exactly are you selling the Byculla land parcel to raise Rs 600 crore? A: So, this has very different reasons for the sale. It is nothing to do with looking at being able to raise capital which is oriented towards taking care of debt. It is basically a joint development agreement that we had signed about twenty years back. The matter was under arbitration for several years and it is just that both the parties together have decided that we look at the option of selling the property together and so that’s really the effort to be able to sell the property together, move out of the arbitration situation, move out of something which was kind of being stagnating for the last 20 years.